[Opinion] The 2025 OECD Update on Fixed Place Permanent Establishment and Work from Home

Sheetal Bhatia – [2025] 181 taxmann.com 279 (Article)

During the pandemic I advised a mid-sized engineering firm whose overseas project managers started working from their homes abroad. What seemed like a harmless operational tweak quickly raised a tax question – Could those home offices create a permanent establishment (PE) for the foreign enterprise?

The OECD’s 2025 update to the Model Tax Convention directly addresses that modern reality. Paragraph 29 of the Commentary on Article 5, alongwith practical examples now gives clearer guidance on when a home or other remote workplace becomes a fixed place PE.

1. What Does the 2025 OECD Update State?

Simply put, the OECD has clarified that a home or remote workplace becomes a fixed place PE only when it functions as a place of business of the enterprise and is at the enterprise’s disposal in a meaningful way.

Key factors to consider

Degree of control and availability – Is the location made available by the enterprise (e.g., provided, required, or regularly used for business purposes)? If the enterprise requires the employee to use that place and it is used continuously, the risk of PE increases
Regularity and continuity of activities – Intermittent or incidental use usually does not create a PE but continuous, core business activities carried out from the home are more likely to do so.
Nature of activities – Administrative or preparatory tasks are less likely to create a PE than core revenue-generating activities.
Enterprise’s provision of the space – If the enterprise provides the workspace, equipment, or pays for it, that strengthens the case for a PE.
Expectation and contractual terms – Written policies, employment contracts, or client arrangements that require or expect work from that location are relevant evidence of intent and control.

2. Practical Illustrations by the OECD

The OECD commentary also provides fact-based scenarios to illustrate how the place of business test applies to homes and other personal spaces. One may use these scenarios as references before forming an opinion.

S. No.	Scenarios	PE Risk	Premises
1	Employee normally works in Country R; post holidaying in Country S, rents a place there and works from that rented place for three straight months.	Low	Three months is temporary and lacks permanence
2	The same employee works from her home in Country S for one or two days per week throughout a twelve-month period (30% of working time)	Low	The home in Country S is a permanent place but the time spent is less than 50% of her total working time.
3	The same employee works from her home in Country S for 80 per cent of her working time in any twelve-month period. She regularly visits her clients in Country S for providing services.	High	The home in Country S is a permanent place and the time spent is also more than 50% of total working time. Further, the client visits show a clear commercial reason for the presence.
4	The same employee works from home in Country S for 60% of her working time in any twelve-month period. Her role is client-facing across multiple countries and works remotely. She meets a client in Country S once a quarter for a day.	Medium to Low	Home use exceeds 50% (which raises risk), but client meetings are intermittent and services are mainly delivered remotely. Thus, the risk of creation of fixed place PE would be medium to low, depending on overall facts and commercial purpose.
5	The same employee normally works from home in Country S. She provides services online to customers in Country R and other countries in different time zones. Because she works from Country S, she can be available in real time or near real time for those customers.	High	Home use exceeds 50% (which raises risk). Further, the employer benefits from the employee being in Country S because her location lets the company serve customers in other time zones effectively. Thus, the home would be considered as a Fixed Place PE.